Consumer Buying Trends: Loyalty Programs

Graham Farrell, Founder & President of Lift & Shift™ Inc., explains how the right rewards program can increase the bottom line for lighting retailers.

I‘m sure you’ve never thought of this analogy before, but selling lighting is a lot like the tire business. As Graham Farrell of Lift & Shift explains, in both industries several years can pass before a customer comes back to make another purchase. For sellers of products that are not frequently purchased (like tires and lighting fixtures), offering customers an incentive to return more often is a profitable endeavor.

The power of loyalty programs has not gone unnoticed by lighting retailers. Some have tried to launch their own programs, typically consisting of earning a percentage off of a future purchase. The results of many individual programs have been disappointing, and Farrell has a theory as to why.

The business he founded – Lift & Shift – partners with the most common frequent flyer programs (i.e. MileagePlus United, American Airlines AAAdvantage, Alaska Airlines, Virgin Atlantic) and other brand name incentive rewards programs. Just as consumers use their frequent flyer-based credit cards to earn miles with every grocery purchase, now they can do the same at a lighting showroom.

“We specialize in retail where people don’t walk in as often as they do a mass merchant or grocery store. Our first clients were in the tire and auto service business, where the average customer comes in perhaps twice in five years,” Farrell states. His company’s goal has been to “lift” (increase the lifetime value of existing customers by retaining them for longer periods of time) and “shift” (attract new customers) these stores’ profitability. The formula is working; Lift & Shift counts Surya and Modus Furniture among its clients as it has expanded into the home furnishings sector.

“Whether you have one store or 20, you have the same need — and that is to get customers in the door for the first time and to have them spend a lot while they are there,” Farrell says. “As a loyalty and rewards marketing expert, we sit down with the retailer to determine their goals.” Sometimes the goal might be to increase the average transaction, or it could be to focus on a particular brand’s sales, or to get rid of certain merchandise in order to bring new products in.

The monthly reward that Lift & Shift works out with retailers (and also manufacturers who’d like to increase their brand’s sales) will reflect those goals. The standard reward is to earn 1 mile for every $1 (or $2) spent. However, to blow out clearance or to boost sales of a particular brand, the monthly incentive might be for triple points on that merchandise.

“Most people have a major credit card that they earn frequent flyer points on, so you’re not asking them to open up a store credit card and all of the time/credit check processing that goes with that,” he remarks. Even if you are not running a promotion, it behooves the sales associate to ask upon point-of-purchase, “Do you have a MileagePlus card? If so, you can double dip on points this month because we [the store] are offering double rewards on these products over here….”

According to Farrell, the demographic of frequent flyer credit card users is ideal for lighting showrooms: white collar professionals with a dual income, living in a large house, and who often own a vacation home.

“He or she is more likely to go to a store that offers miles for their home décor purchases,” he explains. “And when there’s double points/miles or other incentives, he/she is apt to look around the store and think, ‘What else can I buy here?’ to get those mileage points up. We’d love for them to tell their friends, ‘I just earned 800 miles when I bought that chandelier!’”

Lift & Shift is paid monthly by the retailer, and the cost is based on how well the program performs. “On average, it costs retailers less than 10 percent [of the sale] to run this type of loyalty program with us. That’s saving retailers more than if they were to hold their own sale of 20 or 30 percent off. Not to mention that consumers are becoming desensitized to the constant discounting by retailers,” Farrell notes. Mileage reward incentives are perceived differently by the consumer than a Sale sign. “We want retailers to stop discounting because they’re giving away too much of their margin that way,” he explains.

Ok, so how does it work? Most stores have been collecting the email addresses of their customers in a database already. “Very often we find that salespeople aren’t always comfortable asking customers for their email address to join a mailing list, but they feel more comfortable asking if they want to join a [well-known] rewards program,” Farrell says.

Lift & Shift creates a customer ID and a special rewards@ email address for the store. “The open rate on emails sent from a rewards program the customer has signed up for are much higher than for a store’s monthly eblast,” he points out. Customers already in the store’s database receive a Join for Free rewards program invitation to sign up or a Welcome letter (for those who have signed up at the store) sent by Lift & Shift on the retailer’s behalf. Since Lift & Shift is in partnership with the major airlines and other companies, those official logos can be used on the rewards offers to visually drive home the message.

The showroom does not have to designate personnel to send out monthly emails; Lift & Shift handles it from the rewards@ address it established for the business to announce the monthly bonus points offer (i.e. earn double points on all outdoor lanterns) and includes the customer’s rewards balance. Sometimes a vendor – for the tire industry, it could be Michelin or Goodrich – will kick in an extra 5% of the rewards to have their name on the email or with a special offer (i.e. triple points on Brand X outdoor lanterns).

In addition to the frequent flyer partnerships, Lift & Shift can also create a rewards program for the manufacturer or retailer. Clients can customize their loyalty programs to reward/incentivize any target audience including consumers, business owners (i.e. builders, electricians), in-house sales teams, or an external sales force.

“The great thing about a rewards program is that it is highly trackable; it is a very measurable marketing tool,” Farrell states. “We are able to show retailers that the program works.”

The double reward points incentive is especially strong for products – such as lighting fixtures and furniture – that are expensive. Price resistance may be overcome by the addition of another benefit, such as double or triple mileage points that put the customer closer to achieving a vacation goal.

Farrell and his team will be attending the upcoming Las Vegas Market. 